SPENDING BIG BUCKS ON OIL/GAS PROJECTS DOESN'T GUARANTEE SUCCESS
$1.2B bet on a dry hole along Louisiana coast led to ‘Jim Bob’ Moffett’s fallout at Freeport
Daily Report Staff December 30, 2015 GBR Business Report
Freeport-McMoRan Inc. co-founder James “Jim Bob” Moffett’s last big gamble as head of the world’s largest copper miner was a $1.2 billion wrong-way bet six miles beneath the Louisiana coastline.
Bloomberg reports Moffett, a legendary wildcatter and geologist whose credits include the gigantic Grasberg copper deposit in Indonesia, is stepping down as chairman and director at Freeport as the minerals, oil and gas producer turns to cutbacks and cash preservation amid a deepening commodities meltdown.
The 77-year-old Moffett in 2007 staked much of the company’s future on an obscure cluster of gas-soaked rocks, hidden beneath coastal Louisiana oil fields, that had been discarded by bigger operators including Exxon Mobil Corp. After seven years of drilling, Freeport in January suspended work on fields with names like Davy Jones and Blackbeard.
As recently as 2012, Moffett’s briefings at industry conferences drew standing-room only crowds. Oil generated one-fifth of Freeport’s sales last year, almost double the 2013 contribution. Now, with oil down 66% in the past 18 months, his successors are grappling with how to make Moffett’s legacy pay.
“There is no grand solution to the energy business,” Lucas Pipes, an analyst at FBR Capital Markets & Co., tells Bloomberg. “There are no good options for the energy business in this price environment.”
Moffett’s appetite for risk led him to undertake a seven-year effort to harvest gas and oil from a field Exxon abandoned in 2006 for fear of a blowout. With pressure at the bottom of the six-mile deep well approaching 28,000 pounds per square inch—or twice the force required to crush a pickup truck—Exxon quit the Blackbeard project in 2006 after spending $200 million on the hole.
Under Moffett’s leadership, McMoRan obtained control of Blackbeard in 2007 as part of a $1.1 billion acquisition. The following year, Moffett announced that the discovery contained the equivalent of billions of barrels of crude.
But the project was plagued for the next six years by mechanical difficulties. In late 2014, attempts to pump gas and oil from the discovery yielded mostly saltwater, prompting the company to plug the hole with concrete and suspend work.
“The board approached Jim Bob about stepping down, and Jim Bob and the board mutually agreed that he would step down,” Freeport says in an email to Bloomberg. Moffett declined to be interviewed by Bloomberg through a spokesman.
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Replies to This Discussion
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Permalink Reply by Bradley McWilliams on
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Don't know anything about the guy. You reckon it was a case of arrogance leading to a "can't fail" belief, or was it just the typical gambling wildcatter, albeit it with a much bigger budget?
Seems a stretch to take on a project that XOM decided was too complicated.
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Permalink Reply by Skip Peel - Mineral Consultant on
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Jim Bob is one of those larger than life size characters that the industry tends to create. Taking big risks in hopes of big rewards remains ingrained in the dna of the oil culture. I don't know Jim Bob personally nor for that matter do I know Aubrey or Floyd. This thread is as much or more about the fact that far too many land/mineral owners think that actions and investments by O&G companies are sure signs of success. How many times has someone posted a reply along the lines of, "Company X wouldn't spend x millions of dollars (or hundreds of millions or billions), lease x thousands (tens of thousands, hundreds of thousands) acres, build all those pipelines (and other infrastructure), etc. unless they were convinced play x was a sure thing". Just in the relatively short history of GHS we have seen, and discussed, a number of plays in our backyard that for various reasons did not reach economic status. NW LA Horizontal Pettit, N Caddo Horizontal Cotton Valley, Brown Dense - AR & NW LA, TMS - S LA & SW MS to name a few.
The O&G industry as a whole seems to bat around .500. And only a small number of those successful at bats result in home runs or even extra base hits for that matter. It's understandable that land/mineral owners get excited when industry activity becomes apparent in their vicinity. It can bring multiple opportunities that are confusing to average layman along with a lot of rumors that range from some basis in fact to completely false. The age of the Internet has generally been a help in learning more about the ways of the industry. The current state of the industry is a period of evolution. Technology is advancing and markets are in flux. The long term future of energy from hydrocarbons is very hard to project.
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Permalink Reply by Bradley McWilliams on
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From the perspective of mineral owners mistaking investment for success, then I completely agree. Here in the F'ville, when it first got started, all of south east Arkansas was trying to decide how may different colors they should order for their new Cadillac's...
Even yet in the area that has dry gas production, many still believe that "oil is underneath it, they're just waiting for the price to go up before they start drilling for it".
But it's your comment about the future of hydrocarbon energy that is most perplexing. It truly does seem that even a "home run" of production doesn't really mean what it did just a few short years ago. I must say that I'm not convinced that whirly-gigs on top of flag poles can provide the energy needed for a robust economy, but it does seem that more and more folks are willing to accept mediocrity verses the "larger than life" dreams that people used to have. As an example, I point to the folks protesting and fighting for $15 an hour working at a fast food joint. I've always thought these jobs were a stepping stone to "real" jobs. If you want to make more than the pay for flipping burgers, then learn to weld or mechanic or lay brick or work on power lines. People wanted jobs that required factories and warehouses and ships and trains and trucks. Now they are willing to work at the burger joint if they could only make a living there. I know there is a lot more to it, but it just seems that the dreams oil men had and the energy they provided aren't that important anymore.
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Permalink Reply by Skip Peel - Mineral Consultant on
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Re: "the future of hydrocarbons", the home runs are the unconventional basins with the well known names that will be developed over the next 30 or so years. The ones with core and Tier One rock that can provide a profit at depressed prices and return a profit on Tiers Two and Three whenever prices are higher. Natural gas will allow for the growth of whirly-gigs and solar renewable energy technologies. It is a reasonable possibility that some oil and natural gas reserves will never be produced. And will provide no economic benefit to their owners.
I spent a good many years in the food service industry. There are workers who are not capable of laying a brick or welding. Those of whom I speak of work at "real" jobs: behind bars, in kitchens, waiting tables, cashering, etc. Those jobs are actually careers for some and they are certainly jobs that business needs to fill. Even if you add in the fast food industry, that has multiple levels of management beyond "flipping burgers, there is a need for a "living wage". It's easy to overlook the fact that many of those workers don't get 40 hours a week. Nor do they get any benefits. I have worked alongside many good people, valued employees who would accurately be characterized as "the working poor". If there is no path to a reasonable quality of life for people working those kinds of jobs we will continue to need a social safety net.
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Permalink Reply by Bradley McWilliams on
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I was in no way trying to belittle anyone or their career choice. I was merely commenting on the idea of an "entry level" job being a career. If a person wants to provide for a family in the fast food business, or any business, I don't think it unreasonable that they look beyond the basic level of employment in the industry they have chosen.
As for the working poor, that one is hard to throw out solutions for. I agree that demanding all be paid a wage that would provide a good living standard sounds great, but I'm afraid the only good wage a law like that will provide is for the robot programmer that comes up with an automated burger maker.
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Permalink Reply by Skip Peel - Mineral Consultant on
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Many families live quite happily with only the most basic of material possessions - largely by choice. I don't see a way around some form of social safety net. The question is, beyond education and health care, what form that support should take?
The purpose of my discussion, in part, is to get mineral owners to begin thinking about the management of their minerals based on the new paradigm of unconventional reserves and a reasonable likelihood that the age of energy from hydrocarbons will dwindle if not end out right in the second half of this century. Some mineral owners may get another bite at the apple. Some likely have already seen their last chance pass.
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Permalink Reply by rasputin on -
I read that Jim Bob will stay on as a consultant at an annual fee of $1.5 million.
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Permalink Reply by Skip Peel - Mineral Consultant on
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Golden parachute. Figures.
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